Embraer Bets on Radar for World Cup to Amazon Forest

Embraer SA, the world’s largest regional-jet maker, is betting that radar surveillance of the World Cup, mudslides and Amazonian deforestation will shore up its bottom line as demand in its main business shrinks.

Three radar contracts in Brazil being announced today for 36 million reais ($16.3 million) are part of Embraer’s bid to build that business after buying a majority stake in the former Orbisat Industria e Aerolevantamento two years ago. Now known as Bradar Industria SA, the unit sees 2014 sales rising 15 percent.

“In defense, we are currently serving the national market and there is the potential to attend to other countries where Brazil has good geopolitical relationships,” Bradar President Mauricio Aveiro said in a telephone interview from Brasilia. “More than 50 percent of our sales are coming from Brazil now. In the future, some five years from now, foreign sales will be a significant amount” of revenue.

Embraer is increasingly banking on revenue from radars -- which can create maps, measure environmental risks and protect the pope -- and military contracts to offset rising competition in the small-airliner market and as carriers look to larger planes to combat rising fuel prices.

Brazil’s military used Bradar equipment to monitor Pope Francis I for safety when he visited in July and will use ground-based radar units to survey crowds -- or protesters -- at soccer’s 2014 World Cup tournament.

Mudslide Risk

Bradar’s technology will be used to map areas in Brazil at risk of mudslides and parts of the Amazon rain forest before a proposed dam is built. In another dam project, the radars help measure areas where there have been changes that might affect water levels, such as the removal of vegetation.

Revenue estimated at 80 million reais for 2013 should increase as the company taps into new markets as the Brazilian alternative to U.S. and European companies, Aveiro said. Since Embraer bought into the company in 2011, the number of employees has grown from 150 to 250 and Bradar has “gained muscle” under financial restructuring, Aveiro said.

The current backlog for regional jets in Latin America is non-existent from 2019 on, according to data compiled by Boeing Co. through the Flight Global Ascend Online database. Meanwhile, new competitors from Mitsubishi Aircraft Corp. to Sukhoi Co. are crowding the market.

Border Monitoring

That’s why Embraer Chief Executive Officer Frederico Curado set a goal in 2012 of getting as much as 25 percent of revenue from defense within five years, twice 2010’s level. Regional jets accounted for 55 percent of revenue in the second quarter, down from 68 percent a year earlier.

Defense contracts, on the other hand, are rolling in. Military revenue more than doubled from 2005 through 2012 as sales rose 34 percent. Bradar and another Embraer unit last year won a 839 million-real contract to monitor 650 kilometers of Brazil’s 16,886 kilometers of borders in the first phase of the government’s Sisfron program.

“This contract is of enormous magnitude,” Aveiro said. “There’s a lot of potential for us getting contracts for next phases.”

Brazil’s defense-budget cut of 4.6 billion reais this year hasn’t hurt growth at Embraer, said analysts at Bradesco BBI in a note on Sept. 9. “Sisfron, the Brazilian land border monitoring program, has the potential of reaching $4 billion in revenues for Embraer, with 10 percent of that already contracted with the company,” Bradesco’s Edigimar Maximiliano Jr. wrote.

Bradar will deliver three radars to the Brazilian air force by the end of the year for a total of 25 sold since 2011. Radars are already in use in Panama and Colombia for civilian projects as Bradar eyes other countries.

“I see big potential in the next two to three years to increase our international presence,” Aveiro said. “Our competitive advantage isn’t to enter in direct competition with big companies; we are in a strategic position as a Brazilian company with Brazilian technology.”

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